Corporate Loose Lips

Why was the latest information on Kohlberg Kravis Roberts & Co. (KKR) revealed by unidentified sources? Is it a strategic leak or corporate treachery?

According to today’s Toronto Star, anonymous sources revealed that KKR-the Barbarians who were at RJR Nabisco’s gates-plans to go public. Further to this plan, “the firm will buy KKR Private Equity Investors LP, its publicly traded leveraged-buyout fund in Amsterdam, using new shares that will list on the New York Stock Exchange after the purchase is completed in the fourth quarter, said the people, who asked not to be identified before an official announcement.”

These phantom sources also indicated “the plan may be announced as early as today.” Still, KKR spokesperson David Lilly remained tight-lipped on the subject. Does he better understand the consequences of having loose lips? Such things can sink ships, I hear.

On the other hand, maybe he’s paid much better than the others to keep his lips zipped. Or maybe he’s bound by the confidentiality agreement he signed with his employers.

Lilly, is more guarded than his loose-lipped comrades, who also mention that KKR’s founders “would not take any cash out of the company in the listing.”–Certainly, information that would only be available if they were either in bed or in the boardroom with the decision makers.

Granted, the media must have good sources in strategic places in order to sell papers-its implicit in the game; but these sources take serious risks to see their tips appear nameless in print.

Imagine being caught disclosing private company information. Well, if the company didn’t authorize the leak then kiss your privileged job goodbye. Close behind might be your reputation and any employment perks, and those are just some work-related consequences.

Examples from the past

Although a few stories don’t make a trend, today’s story reminds me of a few others.

Earlier this month (July 12th) the Financial Post’s Sean Silcoff declared that BCE, under its new CEO George Cope, would downsize management. “BCE to Cull 2,000 Managers in 100 Days,” read the headline, which underestimated the actual 2,500 announced by BCE today; however, the original story captured the gravity of Cope’s strategy.

Were some of the “insiders” that Silcoff mentioned enlightened victims, or simply employees concerned about their fellow workers and wanting them to be aware of the scope of change that would begin with Cope’s 100-day plan? Readers cannot tell without named sources.

Thinking back on BCE in the news, I realized that in March 2007, Michael Sabia denied reports by the Globe & Mail that he was talking to the predatory KKR & Co. about taking BCE private, but again unnamed sources provided details that fed the rumour mill and fertilized the current BCE privatization plan. The public would have been unaware of the behind the scenes manoeuvrings had it not been for the sources who contributed to Eric Reguly and Andrew Willis’ article.

These sources disclosed the most compelling proof of secret meetings between KKR and Sabia: “KKR has had at least two meetings with top BCE officials, led by chief executive officer Michael Sabia. The first was late last year. The second, in which a buyout idea was discussed, was held in Montreal in the past two weeks.”

Furthermore, “the private equity firm has tried to recruit Canadian partners and has been in talks with leading pension funds, including the Ontario Teachers’ Pension Plan,” the sources explained.

Despite these detailed reports, none of the official representatives of Teachers, BCE, or KKR would comment on the story. Fortunately, the unofficial sources were always more forthcoming, explaining the reasons for involvement in such a merger with the listed, and even proposed additional partners.

Public Relations and unidentified sources

In the end, unidentified sources keep PR teams employed. Companies have to back-pedal or airbrush facts in order to avoid seeming deceitful. A good reputation is beneficial heading into such situations, but a negative one compounds the damage and the work of those responsible for disaster cleanup.

In addition, these informants allow us to highlight questions around trust and confidentiality in the business world. Is there such a thing, or is it dying, dead, or mythical? Who are the informants and why is it that they will never say their names when they report big news? Can no executive be trusted, or has corporate espionage escaped the big screen and become rampant in boardrooms worldwide?

Making an example of informants

Martha Stewart was made poster woman for the consequences of insider trading, and although this story isn’t about insider trading, it makes me wonder who will be the next example? Will a company figure out who has spilled the beans and litigate, or will employees simply have to endure more restrictions and testing from recruitment onward? How else do you deal with the fact that information, however valuable, seems to leak to the media constantly via unnamed but well-informed sources?

In the KKR case, maybe there is no leak per se (some companies plan that sort of thing from what I’ve read) but it breads mistrust and it should be reconsidered as a PR strategy.

On the other hand, while I thank the unnamed sources in most cases, readers may become jaded with a constant flow of unverifiable sources.

Understandably whistleblowers need anonymity; but others who report normal business transactions (sensational or otherwise) should carefully consider why they need anonymity. Remaining silent is an option, especially when the information will shortly be revealed anyway as suggested in the KKR case; Otherwise, be prepared to be named in print.

Besides, when news is revealed as planned there is less suspicion from co-workers, who were part of the coalition of the informed, and the general public, who wonder why informants withhold their names.